Perhaps you need to consolidate debt, finance a home improvement project or cover a significant expense. One way to do this is to take out a personal loan – an unsecured loan that can be used for a variety of purposes.
When you take out a personal loan, you’ll need to repay the loan with interest, so you definitely want to shop for the lowest personal loan interest rates possible. But how do personal loans work, and what is a good interest rate on a loan?
If you’re considering a personal loan – whether for debt consolidation, home improvements or other unexpected expenses – knowing how lenders calculate interest rates and how to find the best rate could save you thousands of dollars.
Key Takeaways:
- Current personal loan interest rates average around 11%, but rates depend heavily on your credit score, income, loan amount, loan purpose and debt-to-income ratio.
- You can lower your personal loan interest rate by boosting your credit score, comparing multiple lenders, choosing shorter loan terms and enrolling in autopay discounts.
- Personal loans often offer rates several percentage points lower than credit cards, making them an ideal option for consolidating high-interest debt and making large purchases of $5,000 or more if you have good credit.
How Do Personal Loan Rates Work?
Since personal loans are unsecured debts, there’s no collateral attached to them. Unsecured loans are riskier for lenders because they have no assets to seize if you default on the loan. For this reason, interest rates for personal loans tend to be higher than those for secured loans, such as auto loans, home mortgages and home equity lines of credit.
The interest rate you receive will determine your monthly payments and the total amount you pay over the life of the loan. Most personal loans come with fixed rates, which means the interest rate won’t change and you’ll have predictable monthly payments.
For instance, let’s say you take out a $5,000 personal loan with a 10% interest rate and a 5-year repayment term. Your monthly payments will be $106.24, and you’ll end up paying $1,374.11 in interest.
Let’s say you took out the same loan, but with an interest rate of 13.5%. Your monthly payments would increase to $115.05, and you’d pay $1,902.95 in interest.
If you want to save on interest payments, consider shortening the loan term, which will result in higher monthly payments. Likewise, if you want to lower your monthly payment, you could extend the loan term, but you’ll pay more in interest.
It’s important to note that the interest rate and the annual percentage rate (APR) are two different calculated items. The interest rate is the base rate you’ll pay for taking out the loan, while the APR includes the interest rate and any additional fees, like origination fees.
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Current Average Personal Loan Interest Rates
Personal loan rates vary based on a slew of factors: your credit score, income, loan amount and purpose, and loan term. Borrowers with excellent credit can sometimes qualify for rates as low as 6.24% APR, while those with lower credit scores might see rates as high as 30%, according to some industry estimates.
How Do Current Personal Loan Rates Compare Historically?
Over the past 5 decades, average personal loan rates have ranged from as low as about 9% in recent years to as high as nearly 20% in the 1980s. Personal loan rates reached their highest level in recent years, during 2023 and 2024, when average rates soared above 12%, following aggressive Fed rate hikes to combat inflation. Rates have dropped modestly since then – from 12.49% in February 2024 to 11.4014% in February A 2026ugust 2025 – but remain well north of pre-pandemic levels, according to the Federal Reserve.
During 2020 and 2021, average personal loan rates dipped below 10%, according to Fed data, as the central bank slashed its benchmark rates to near zero to offset the economic impact of the pandemic.
What’s Driving Personal Loan Interest Rates?
In 2025, the Federal Reserve resumed cutting its benchmark federal funds rate after holding steady throughout 2023 and 2024. The central bank voted to cut rates by a quarter percentage point in December 2025, bringing the range to 3.5% – 3.75%. This followed similar reductions in September and October, bringing borrowing costs to their lowest level since late 2022.
However, economic uncertainty, including questions about inflation trends, has limited how much lenders are willing to reduce personal loan rates.
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Personal Loan Rates Vs. Credit Card Rates
Personal loan rates tend to be much lower than credit card rates, but may be harder to qualify for. If you’re unsure of which product to get, here’s a look at how they stack up.
| Product Features | Personal Loans | Credit Cards |
|---|---|---|
| Current Interest Rates | 12.06*% | 21.39%** |
| Rate Type | Fixed; often lower APRs than credit cards | Variable; often higher APRs if you carry a balance |
| Rate Cost | 8 to 12 percentage points lower than credit cards, especially with good credit | APRs starting in the high teens and often average north of 20% |
| Fund Access | Single lump-sum disbursement | Reusable line of credit |
| Repayment | Fixed monthly payments for the life of the loan (usually a few years) | Repay balance as you use it, but will pay steep interest on balances you carry |
**Source: Federal Reserve, Commercial Bank Interest Rate on Credit Card Plans, All Accounts as of August 2025.
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Factors That Impact How Personal Loan Interest Rates Are Determined
What is the interest rate on a personal loan? It varies by the applicant. The rate you receive for a personal loan depends on the following factors.
1. Credit Score and Credit History
Borrowers with credit scores of 740 and higher and a good credit history will qualify for a lower interest rate and APR on their personal loans. You’ll likely need a FICO® score of about 670 to qualify for a moderately good rate.
You may still qualify for a personal loan even if your credit score is below 670. However, borrowers with fair or poor credit will receive higher rates, shorter loan terms and smaller loan amounts if they do qualify.
2. Debt-To-Income Ratio
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward debt payments. If you have a high DTI, lenders will view you as a higher risk, as this may indicate that you’ve overextended your budget.
3. Personal Loan Terms
The larger your loan amount and the longer the loan term, the higher your loan rate and APR may be. The type of personal loan you apply for also will impact the interest rate you receive. For instance, you could earn a better rate by taking out a secured loan since the loan is backed by collateral. This might be a good strategy if you have a low credit score.
4. Income And Employment Stability
Lenders will require you to submit proof of income. Your annual income is used to determine both your personal loan rate and the amount you can borrow.
5. Loan Amount
Very large personal loans ($50,000 or more) may trigger higher rates because the lender assumes greater risk; however, your creditworthiness and other criteria also play a key role in determining the actual rate.
6. Loan Purpose
Some lenders adjust rates based on what you plan to use the money for. Debt consolidation loans typically offer better rates than general-use loans. Home improvement loans also tend to have competitive rates, while RV or motorcycle loans may have higher APRs.
Lenders view debt consolidation favorably because it improves your financial situation, making it more likely you’ll repay the loan. Some lenders even offer specific debt consolidation rate discounts of 0.25% to 0.5%.
7. Collateral (Secured Vs. Unsecured)
Most personal loans are unsecured, meaning you don’t put up an asset (like a car or home) as collateral to reassure lenders they can recoup their loss if you default.
However, some lenders offer secured personal loans that use your savings account, CD or vehicle as collateral. These loans usually have lower rates than unsecured loans (but not always) and easier approval if you have lackluster credit. On the flip side, the lender can seize the asset if you default.
8. Economic Conditions
Broader market influences can impact personal loan rates. When inflation ticks up and/or labor markets are strong, the Fed raises its benchmark rate to cool consumer spending and stabilize prices. This prompts lenders and banks to increase their borrowing rates, too (including rates for personal loans).
The good news is that when the Fed slashes rates, personal loan rates usually follow, though not always at the same time or by the same amount.
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How To Get A Lower Personal Loan Rate
Since your personal loan rate affects how much you’ll pay, you want to find the best rate possible. Here are some steps you can take to get a lower personal loan interest rate:
- Build your credit; a higher score means better terms.
- Pay down debt, especially high-interest credit card debt.
- Lower your DTI – aim for 43% or lower.
- Enroll in autopayments (rate reduction varies by lender).
- If you already have a personal loan, refinance your loan to get a better rate and terms.
- Shop around for the best personal loan interest rates with at least three different lenders.
- Increase your income through raises, side hustles or promotions.
- Avoid taking on new debt before applying for a personal loan.
- Choose shorter loan terms for lower rates if you can handle higher monthly payments.
- Apply with a cosigner who has a good credit history.
FAQ
Before you start shopping for a personal loan, consider these common questions about them.
The Bottom Line: Shop Around For The Best Personal Loan Interest Rates
Taking out a personal loan can help you meet your personal and financial goals, but you want to shop around for the right loan for your goals. Take some time to enhance your financial situation by improving your credit score and paying down debt.
Remember: The lowest advertised personal loan rate won’t necessarily be the rate you’re offered. But with preparation, getting your finances in order and smart shopping, you can secure competitive rates and find the right personal loan for your needs.
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Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
